Is the US economy overstretched?

Patrick L Young is CEO of niche crowdfunding platform HanzaTrade and an advisor to fund managers throughout the world. Born in Ireland, he is an active investor in the “New Europe” amongst other emerging markets and is an active Co Founder of grassroots startup group "Mission ToRun."
Home Page: http://patricklyoung.net Twitter: @FrontierFinance

A trader works on the floor of the New York Stock Exchange during the morning of January 2, 2015 in New York City. (Andrew Burton/Getty Images/AFP) / AFP

The US economy is growing rapidly once again: 5 percent was recorded in recent months. But can it last?

America is at risk. At risk of the economic cycle, I hasten to
add. However, it may appal the “trollosphere” to read the next
sentence: Rumors of the death of the US economy are strictly
exaggerated. Nevertheless, economic gravity may soon be upon it.

America has a wonderful appreciation that while capitalism
delivers for its advocates (better living standards, higher wages
and of course, economic growth) there are inevitable (cyclical)
downswings. This attitude diverges from the prevailing European
mentality where sad socialist recidivism has taken greater hold.
European governments retain a misguided belief that they can defy
economic gravity. Some even proffer delusions of breaking the
economic cycle entirely (e.g. Britain’s fiscal failure Gordon
Brown). Meanwhile egg runs down the faces of the EU when
recalling their ridiculous protestations that Anglo-Saxon
capitalism was broken just as Europe plunged headlong into their
lost decade of growth.

Despite the leftward lunge of the largely unproductive President
Obama (golf and basketball aside), at its core, the American
economy remains propelled by entrepreneurial individuals
realizing the dream of self-improvement through diligent
risk-taking. That sunny Reaganite optimism serves the nation
well. China may be coming up on the rails as the single largest
economy but US income per capita remains unprecedented.

True, there has been some economic folly in the US, QE
aforethought, alongside inadequate resolution of the banking
mess: zero justice amid a bit of point-scoring against those with
the temerity to criticize the basketballer-in-chief.
Nevertheless, with a core robust free market system, America has
blossomed once more. Meanwhile Europe wallows in a festering pit
of despair, strangled by meddlesome red tape.

Thus Americans do what they have always done best – less impeded
by government, they flourish when given space to grow. Sadly,
that maxim is largely unknown in other, poorer continents.
Separate to this economic dialogue, some correspondents may
reflect that the US government has perhaps overcompensated for
its laissez faire economics with a rather trenchant enthusiasm
for intervention in other nations’ foreign affairs.

Nevertheless, calculating the “bread and circuses” indicator of
human life, the American economy remains in the long-term a
wondrous economic marvel to behold – presuming that is, the
ongoing craziness of Obama economics are not reflected in a
president to the left of logical reason, like Hillary Clinton,
for instance. Those preaching a mantra that America risks
splitting at the seams ignore the core economic cohesion – yes
there are social issues, but compared to the mass beggaring of
Euro-youth? I think not.

Unfortunately at the same time, economic gravity will out and
that leads to some concern for 2015. The US economy has averaged
57 months of expansion before matters get a tad overheated and a
recession ensues. Equally, we have many indicators of somewhat
frothy stock multiples. Are they expensive? Well they certainly
aren’t cheap, with large US corporations making half their
profits overseas. Even presuming growth elsewhere, a resurgent US
dollar suggests lower profits for American corporations.
Moreover, the bond bubble is on borrowed time with the shale
economy likely subject to a “wildcat” cyclical downturn, given
collapsing oil prices.

Admittedly, the US economy suffered a large downswing in the last
recession but thanks to the flexibility of its employment and a
relatively forgiving approach to redemption of entrepreneurial
spirit after failure, the US has had a huge upswing which may
continue awhile yet. However, January 2015 marks the 67th
consecutive month of expansion (read that and weep, Europe!),
already 10 more than the average upswing. Yes, the cycle may
carry on for a while (we all hope so) but ultimately cyclical
gravity will impact the US economy once more and it begins 2015
leveraging itself against the mean. A US recession is likely
close at hand.

Ironically, while a US recession will adversely impact its
citizens, the biggest losers in the process will likely be
overseas markets. Even a short, relatively muted recession will
likely cause a wave of dislocation, e.g. amidst the enormously
over-leveraged government spendthrift continent of Europe where
government continues to ignore the lessons of their own hubristic
impotence to create growth.

An overstretched US cycle will likely cause America more economic
pain before the lame duck Obama presidency ends. However, it will
make the greatest impact on weakened states across the Atlantic.

The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of RT.